Yesterday, the Manhattan D.A.'s office brought shocking criminal charges against three of the former leaders of law firm Dewey & LeBoeuf LLP. The Dewey firm went under in 2012 after over a century in business. Manhattan D.A. Cyrus R. Vance, Jr., announced the indictments of Steven Davis, Stephen DiCarmine, and Joel Sanders, who were, respectively, the chairman, executive director, and CFO of the firm. The criminal indictment alleges that the defendants defrauded and stole from the firm's lenders, investors, and others, and charges the men with grand larceny in the first degree, scheme to defraud in the first degree, Martin Act securities fraud, falsifying business records in the first degree, and conspiracy in the fifth degree. 

Vance claimed that the defendants concocted "a massive effort to cook the books at Dewey & LeBoeuf." The firm's leaders, he said, "directed employees to hide the firm's true financial condition from creditors, investors, auditors, and even partners of the firm, until the scheme unraveled and resulted in the largest law firm bankruptcy in history."

A fourth defendant, Zachary Warren, was also charged in two indictments with a scheme to defraud in the first degree, falsifying business records in the first degree, and conspiracy in the fifth degree. The 29-year-old Warren was a client relations manager at the firm.

In addition to the state criminal charges brought by the D.A.'s office, the SEC announced its own case yesterday against five defendants: Davis, DiCarmine, and Sanders, plus finance director Frank Canellas, and controller Tom Mullikin.

The SEC alleged that the five defendants resorted to a "grab bag of accounting gimmicks" after they began to fear that the firm's declining revenue might cause its bank lenders to cut off access to the firm's credit lines. According to the SEC, 

Dewey & LeBoeuf's leading financial professionals combed through its financial statements line by line and devised ways to artificially inflate income and distort financial performance.  Dewey & LeBoeuf then resorted to the bond markets to raise significant amounts of cash through a private offering that seized on the phony financial numbers.

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